Don’t Innovate Italian Soccer Style

The summer of 2010 may be over and Italy’s Serie A league has again kicked off, but to many Italians, the national soccer team’s elimination in the first round of the World Cup in June 2010 still rankles. Along with the 60-odd million other soccer “experts” in my country, I’ve been studying Italy’s worst-ever performance in a World Cup (no wins, two draws, and one loss, resulting in a first-round elimination) during my vacation, wondering if we can learn anything from that resounding defeat.

There are several variables in soccer but, like many critics, I believe that the Italian team’s coach, Marcello “The Tuscan Tactician” Lippi, made two grave mistakes. Although he is a proven leader, Lippi assembled a team of veterans he had coached earlier instead of creating one from the best Italian players today. Second, and partly as a consequence, he had to make several changes to formations and schemes as the tournament progressed, forcing his players to cope with unfamiliar roles and situations.

Let’s parse out the consequences of these two mistakes for the Italian team — and for business.

Lippi discounted the fact that although several players were members of Italy’s World Cup winning squad in 2006, they would be four years older this time around. That led to fitness issues and injuries, and, importantly, it stifled innovation. The team consisted of stars and veterans, so Lippi relied on what his players already knew rather than take the risk of making changes. He didn’t seem to believe that it was necessary for the players to learn to play differently than they did in 2006 to win. Managers often tend to replicate what they have done, especially when it has worked, with disastrous results.

I call this falling prey to Parmenides’ fallacy, after the pre-Socratic philosopher who wrongly argued that the status quo is eternal. Companies often make the same mistake, investing little in innovation because they believe market conditions are stable. For instance, they calculate discounted cash flows from investments under the assumption that current revenues will not change instead of believing that they will most likely fall tomorrow.

The Italian coach also believed that by using players from his old squad, he could count on their knowledge of his old formations and schemes and that would guarantee cohesion and team spirit. Sadly, leveraging existing infrastructure and personnel, however good they may be, isn’t a guarantee of the future — as the Italian team found. When the organization isn’t in harmony with a fast-changing external environment, leaders who leverage existing assets make biased and poor decisions.

Lippi was clearly guilty of in-group favoritism. Most Italians wanted him to include some younger players, but he didn’t believe any deserved to be in the team and said that preserving group spirit was critical. Similarly, managers often recruit and promote only those who have been part of their work teams or social groups. This unconscious bias leads to wrong people choices; doesn’t create good leaders; and makes innovation a slow and difficult process.

As the tournament progressed, Lippi altered strategies and placed players in different positions in an act of desperation. This created confusion and resulted in terrible individual performances. Because Lippi hadn’t invested in fresh talent or new schemes, he found himself in an innovation capability trap. Similarly, organizations can either get employees to work harder or improve how they work by modifying processes and improving capabilities. If they focus solely on the former, productivity will rise and short-term results may improve — but the system will break down at some stage. It’s impossible to deploy new capabilities when you need to if you haven’t already invested in developing them.

In business as in sports, capabilities decline quietly and smoothly. If companies don’t constantly invest in innovation, they will perform well for a while and then, suddenly, they will fail — as the Italian team did during the most prestigious soccer tournament in the world.

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